7 ms·

I'd love to have this service at home, so I'm (selfishly) hoping Instacart becomes hugely successful! That said, I can't help but wonder whether the company wi

by cs702 14y ago

I'd love to have this service at home, so I'm (selfishly) hoping Instacart becomes hugely successful! That said, I can't help but wonder whether the company will find a business model with sustainable economics. A lot of really smart people have tried and failed to accomplish this sort of thing before. For example, Amazon invested $60 million in Kozmo.com back in the late 90's, and they couldn't make it work. (Kozmo.com ended up raising a quarter billion dollars before shutting down.)[1] The main challenge is that same-day, point-to-point delivery is very expensive -- a complex problem. (Most delivery systems in use today rely on some kind of hub-and-spoke design.) Perhaps the wide adoption of smart phones will make point-to-point delivery economically viable for Instacart -- e.g., by giving the company cost-effective access to underused delivery vehicles as needed to satisfy the ebbs and flows of consumer demand. I'm curious to see if and how Instacart can pull it off. -- [1] http://en.wikipedia.org/wiki/Kozmo.com#History http://en.wikipedia.org/wiki/Kozmo.com#History

apoorvamehta 14y ago
While I agree that a lot of smart people have tried this before (Kozmo.com, WebVan, etc), I believe that there are significant differences in the approach that we are taking. Specifically, Kozmo.com was founded in an era where you could IPO without having profits. Having that mentality from day one allowed them to make huge concessions to users such as give them free delivery on everything, and not have a minimum order. For example, you could pay $1.50 for a gum on Kozmo and get it delivered to you within an hour. WebVan, on the other hand spend $1B on building it's own warehouses and fulfillment infrastructure. Learning from those companies, we have done a lot of things differently. For starters, there is a minimum order of $10. There is a delivery fee of $3.99 for 3 hours and $9.99 for 1 hour. (Would you not pay $4 for someone to do all your groceries?) And, we do not hold any inventory - all of it is sourced directly from local retailers. It is also important to mention that the time that we live in is very different. People are a lot more comfortable adding their credit card information on web/mobile. Not to mention, the access to smart phones that people have gives customers the ability to shop from anywhere - office, couch, next to the fridge. We believe we are different from the companies that have tried this in the past. And, we hope we are live in your hometown very soon. (edits to follow)
- bastian 14y ago
  Thanks for cloning Get It Now after using it. ;)
- deleted 14y ago
  [deleted]
- cs702 14y ago
  apoorvamehta: thank you for your prompt, articulate response. The logistical challenges look daunting to me. My recollection is that the problem of coordinating and optimizing deliveries in such a point-to-point system with time constraints is NP-hard (I could be wrong about this, but that's my recollection). Then one has to deal with all sorts of real-world problems like order-fulfillment errors and substitutions (intentional and otherwise), constant shrinkage of merchandise, etc. Obviously there's some price at which the service can be profitable, but I'm not sure it's $4. (Consider that the former CTO of Kozmo, Chris Siragusa, has been running a one-hour, point-to-point $3 delivery service for a number of years, MaxDelivery.com, but he has kept the service restricted to a relatively small, dense area in lower Manhattan, making the economics worthwhile.) In any case, I sure hope you're right!
  - zeroonetwothree 14y ago
    Sure it's NP-hard for an optimal solution, but the n here might be fairly small (how many orders in a 1 hour window?) or they can just use heuristics to do very well, if suboptimally.
    - cs702 14y ago
      [...] how many orders in a 1 hour window? Depends on the city. In large metropolitan areas like NY, Chicago, the VA-DC-MD corridor, etc., potentially tens or hundreds of thousands at certain times of the day (e.g., 7pm, when people get home from work).
  - apoorvamehta 14y ago
    cs702, your recollection is correct. Last mile logistics is a hard problem. Not to mention, order-fulfillment errors and substitutions do happen. However, we believe these are solvable. It comes down to two things - one is proper training of the drivers and using technology as much as possible to eliminate chances of errors. That is too high level. Let me explain more clearly for one specific case of order substitution. Since we are focusing on a niche (groceries), our system has already calculated the substitutes of items. We know how to substitute a Store Brand Ketchup to Heinz IF needed. A lot of what I know about logistics is from my time at Amazon Supply Chain, where I dealt specifically with the challenge of fulfilling packages to the customer from AMZN FCs (aka warehouses). And, at Instacart we believe we can have the same efficiencies IF we model the stores in a city just like AMZN modeled warehouses across the world.
jonmc12 14y ago
I'm hoping service succeeds also - its an awesome value proposition for consumers. However, I've built a few real-time delivery businesses, and I'm pessimistic. Real-time operations are costly to manage even though the software has become easier to build. Not being Amazon and not being able to control inventory, and access to that inventory, hurts. However, probably a bigger issue is establishing consumer habit - triggering that need to order at the moment the user wants it. This comes down to establishing a brand (expensive) and also evolving consumer behavior (more expensive). And, these consumers will have to be in the < 200 geographical regions of the US that are dense enough to facilitate < 4hr delivery profitably (its probably less than 50 regions where you could fulfill on 1-hr delivery profitably at any substantial volume). You could say Uber is a counter example of succeeding in this space. I would argue that they replaced an existing consumer habit with a better one. I don't see that in the same-day delivery space - thus the need for education. There have been a few generations of these services (Webvan / Kozmo; Licketyship; Ecourier / Shutl; Postmates). Eventually, the cost of tapping into consumer habit vs the small margins of brokering a delivery will create an amazing opportunity. In the meantime, the cost of educating and acquiring users is a big deterrent and if you can build the kind of company innovative enough to solve this problem, its likely you have a prohibitively high opportunity cost.
- laglad 14y ago
  Do you think that the delivery economics work better in incredibly dense regions like Mumbai or Shenzen?
  - boomzilla 14y ago
    Actually I think this business model works better in big and dense Asian cities. There are a few things going for them: 1. cheaper labor: that drives down delivery costs 2. low credit card penetration is a business advantage: the drivers (or bicycle riders :), can collect COD. That saves card transaction fee too ... 3. buying habit: I know for certain that many Asians still shop groceries daily. This, together with a very busy, growing, new middle class, provides for a big and fast growing market
dclowd9901 14y ago
I think to solve this problem, Amazon needs to bridge the gap between their value and local retailers' stock. It'd work something like this: You go online. You want to buy a new A/V receiver You find the one you want on Amazon at 9 am Amazon then asks you where you live Amazon taps into a database of willing stores that might carry the product. Most big-box stores have web-based inventory checks, so syncing their inventory with Amazon's system would (hopefully) be easier. Amazon offers the service to more specialized outfits; Smaller stores would get support in integrating the inventory system. Amazon would have to make a deal with these stores to make this work. Using a partnership with UPS/FedEx/et.al., Amazon figures out which locations are still due for visits from a logistics company. Most make residential shipments as the last part of the day. Amazon tells the store, "A customer requested this receiver, please put it in box size A1 and hand it to the UPS dude with this shipping label." Amazon pays the retailer below retail, but above cost. The retailer takes it because they want the business; Amazon recoups because same-day shipping is a premium. Box goes on the truck, truck comes to your house. Voila, new item by EOD same day.
- marquis 14y ago
  The bottleneck is the delivery: unless there are sufficient deliveries to be made in your neighbourhood, sending a van to just your house then back to depot is very expensive. For hundred-dollar-and-up items this works, but not for the kind of consumer goods that people want within an hour (food, namely). And for $9.99 for one-hour delivery, who is not getting paid very well here?
  - rogerbinns 14y ago
    The expense is mainly because of the driver. The moment self driving vans become economically feasible the delivery expenses will drop precipitously.
    - sliverstorm 14y ago
      Are you just waiving fuel costs?
hyperbovine 14y ago
There's evidence that Amazon is about to make another go at same-day delivery, see: http://www.slate.com/articles/business/small_business/2012/07/amazon_same_day_delivery_how_the_e_commerce_giant_will_destroy_local_retail_.html http://www.slate.com/articles/business/small_business/2012/0...

by cs702 14y ago

apoorvamehta 14y ago

While I agree that a lot of smart people have tried this before (Kozmo.com, WebVan, etc), I believe that there are significant differences in the approach that we are taking. Specifically, Kozmo.com was founded in an era where you could IPO without having profits. Having that mentality from day one allowed them to make huge concessions to users such as give them free delivery on everything, and not have a minimum order. For example, you could pay $1.50 for a gum on Kozmo and get it delivered to you within an hour. WebVan, on the other hand spend $1B on building it's own warehouses and fulfillment infrastructure. Learning from those companies, we have done a lot of things differently. For starters, there is a minimum order of $10. There is a delivery fee of $3.99 for 3 hours and $9.99 for 1 hour. (Would you not pay $4 for someone to do all your groceries?) And, we do not hold any inventory - all of it is sourced directly from local retailers. It is also important to mention that the time that we live in is very different. People are a lot more comfortable adding their credit card information on web/mobile. Not to mention, the access to smart phones that people have gives customers the ability to shop from anywhere - office, couch, next to the fridge. We believe we are different from the companies that have tried this in the past. And, we hope we are live in your hometown very soon. (edits to follow)

bastian 14y ago
Thanks for cloning Get It Now after using it. ;)
deleted 14y ago
[deleted]
cs702 14y ago
apoorvamehta: thank you for your prompt, articulate response. The logistical challenges look daunting to me. My recollection is that the problem of coordinating and optimizing deliveries in such a point-to-point system with time constraints is NP-hard (I could be wrong about this, but that's my recollection). Then one has to deal with all sorts of real-world problems like order-fulfillment errors and substitutions (intentional and otherwise), constant shrinkage of merchandise, etc. Obviously there's some price at which the service can be profitable, but I'm not sure it's $4. (Consider that the former CTO of Kozmo, Chris Siragusa, has been running a one-hour, point-to-point $3 delivery service for a number of years, MaxDelivery.com, but he has kept the service restricted to a relatively small, dense area in lower Manhattan, making the economics worthwhile.) In any case, I sure hope you're right!
- zeroonetwothree 14y ago
  Sure it's NP-hard for an optimal solution, but the n here might be fairly small (how many orders in a 1 hour window?) or they can just use heuristics to do very well, if suboptimally.
  - cs702 14y ago
    [...] how many orders in a 1 hour window? Depends on the city. In large metropolitan areas like NY, Chicago, the VA-DC-MD corridor, etc., potentially tens or hundreds of thousands at certain times of the day (e.g., 7pm, when people get home from work).
- apoorvamehta 14y ago
  cs702, your recollection is correct. Last mile logistics is a hard problem. Not to mention, order-fulfillment errors and substitutions do happen. However, we believe these are solvable. It comes down to two things - one is proper training of the drivers and using technology as much as possible to eliminate chances of errors. That is too high level. Let me explain more clearly for one specific case of order substitution. Since we are focusing on a niche (groceries), our system has already calculated the substitutes of items. We know how to substitute a Store Brand Ketchup to Heinz IF needed. A lot of what I know about logistics is from my time at Amazon Supply Chain, where I dealt specifically with the challenge of fulfilling packages to the customer from AMZN FCs (aka warehouses). And, at Instacart we believe we can have the same efficiencies IF we model the stores in a city just like AMZN modeled warehouses across the world.

jonmc12 14y ago

I'm hoping service succeeds also - its an awesome value proposition for consumers. However, I've built a few real-time delivery businesses, and I'm pessimistic. Real-time operations are costly to manage even though the software has become easier to build. Not being Amazon and not being able to control inventory, and access to that inventory, hurts. However, probably a bigger issue is establishing consumer habit - triggering that need to order at the moment the user wants it. This comes down to establishing a brand (expensive) and also evolving consumer behavior (more expensive). And, these consumers will have to be in the < 200 geographical regions of the US that are dense enough to facilitate < 4hr delivery profitably (its probably less than 50 regions where you could fulfill on 1-hr delivery profitably at any substantial volume). You could say Uber is a counter example of succeeding in this space. I would argue that they replaced an existing consumer habit with a better one. I don't see that in the same-day delivery space - thus the need for education. There have been a few generations of these services (Webvan / Kozmo; Licketyship; Ecourier / Shutl; Postmates). Eventually, the cost of tapping into consumer habit vs the small margins of brokering a delivery will create an amazing opportunity. In the meantime, the cost of educating and acquiring users is a big deterrent and if you can build the kind of company innovative enough to solve this problem, its likely you have a prohibitively high opportunity cost.

laglad 14y ago
Do you think that the delivery economics work better in incredibly dense regions like Mumbai or Shenzen?
- boomzilla 14y ago
  Actually I think this business model works better in big and dense Asian cities. There are a few things going for them: 1. cheaper labor: that drives down delivery costs 2. low credit card penetration is a business advantage: the drivers (or bicycle riders :), can collect COD. That saves card transaction fee too ... 3. buying habit: I know for certain that many Asians still shop groceries daily. This, together with a very busy, growing, new middle class, provides for a big and fast growing market

dclowd9901 14y ago

I think to solve this problem, Amazon needs to bridge the gap between their value and local retailers' stock. It'd work something like this: You go online. You want to buy a new A/V receiver You find the one you want on Amazon at 9 am Amazon then asks you where you live Amazon taps into a database of willing stores that might carry the product. Most big-box stores have web-based inventory checks, so syncing their inventory with Amazon's system would (hopefully) be easier. Amazon offers the service to more specialized outfits; Smaller stores would get support in integrating the inventory system. Amazon would have to make a deal with these stores to make this work. Using a partnership with UPS/FedEx/et.al., Amazon figures out which locations are still due for visits from a logistics company. Most make residential shipments as the last part of the day. Amazon tells the store, "A customer requested this receiver, please put it in box size A1 and hand it to the UPS dude with this shipping label." Amazon pays the retailer below retail, but above cost. The retailer takes it because they want the business; Amazon recoups because same-day shipping is a premium. Box goes on the truck, truck comes to your house. Voila, new item by EOD same day.

marquis 14y ago
The bottleneck is the delivery: unless there are sufficient deliveries to be made in your neighbourhood, sending a van to just your house then back to depot is very expensive. For hundred-dollar-and-up items this works, but not for the kind of consumer goods that people want within an hour (food, namely). And for $9.99 for one-hour delivery, who is not getting paid very well here?
- rogerbinns 14y ago
  The expense is mainly because of the driver. The moment self driving vans become economically feasible the delivery expenses will drop precipitously.
  - sliverstorm 14y ago
    Are you just waiving fuel costs?

hyperbovine 14y ago

There's evidence that Amazon is about to make another go at same-day delivery, see: http://www.slate.com/articles/business/small_business/2012/07/amazon_same_day_delivery_how_the_e_commerce_giant_will_destroy_local_retail_.html http://www.slate.com/articles/business/small_business/2012/0...